3. Gains from trade Consider two neighboring island countries called Dolorium and Bellissima. They each have 4 million tabor hours available per month that they can use to produce jeans, corn, or a combination of both. The following table shows the amount of jeans or corn that can be produced using 1 hour of labor. Country Dolorum Bellissima Jeans Corn (Pairs per hour of labor) (Bushels per hour of labor) 4 16 10 Initially, suppose Bellissima uses 1 million hours of labor per month to produce Jeans and 3 million hours per month to produce com, while Dolorum uses 3 million hours of labor per month to produce jeans and 1 million hours per month to produce corn. Consequently, Dolorum produces 12 million pairs of jeans and 16 million bushels of corn, and Bellissima produces 5 million pairs of jeans and 30 million bushels of com. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of jeans and com it produces Dolorium's opportunity cost of producing 1 pair of jeans is of corn and sellina's opportunky cost of producing 1 pair of Jeans is of con. Therefore has a comparative advantage in the production of Jeans, and has a comparative advantage in the production of com a Suppose that each country completely specializes in the production of the good in which has a comparative advantage, producing only that good. In this case, the country that produces seans will produce million pairs per month, and the country that produces corn will produce million bushels per month In the following table, enter each country's production decision the third row of the table Production Suppose the country that produces Jeans trades 13 million pairs of Jeans to the other country in change for million bushels of corn In the following table, inter each country's production decision on the third row of the table marked "Production) Suppose the country that produces jeans trades 13 million paits of Jeans to the other country in exchange for 39 million bushels of corn In the following table, select the amount of each good that each country exports and imports in the boxes across the cow marked Trade Action, and enter each country's final consumption of each good on the line marked "Consumption." When the two countries did not specialize, the total production of jeans was 17 million pairs per month, and the total production of corn was 46 million bushels per month. Because of specialization, the total production of Jeans has increased by million pairs per month, and the total production of com has increased by million bushels per month Because the two countries produce more jeans and more com under specialization, each country is able to gain from trade. Calculate the gained from trade that is the amount by which each try has increased its consumption of each good relative to the first row of the table. In the following table, enter this difference in the boxes across the last row (marked "Increase in consumption Dolorium Jeans Com (Millions of pairs) (Millions of bushels) Bellissima Jeans Corn (Millions of pairs) (Millions of bushels) 12 16 5 30 12 16 5 30 Without Trade Production Consumption With Trade Production Trade action Consumption Gains from Trade Increase in Consumption
